Pro

Governments can intervene in the economy in several ways. I’ve pared down the forms in which governments affect the market to the following:

1.Regulations

2.Price Controls

3.Property Controls

I will argue that these measures don’t necessarily increase prosperity or standard of living while negatively affecting the market as a whole by:

1.Limiting competition

2.Limiting consumer choice

3.Increasing costs and prices

4.Increasing uncertainty of the future

5.Creating artificial surpluses/shortages

6.Diverting resources from their most efficient (consumer-demanded) employment

Regulations that governments enforce are usually enacted under the pretense that they either make the market fairer, or they protect the consumer. However, even when there are no nefarious intentions of the government or the companies lobbying for the new regulations, regulation inherently limits competition by increasing the cost of entry into the market and reducing the ways in which a new business can satisfy consumer demand.

One example is business licensing. Many municipalities require some kind of license to operate a business in a certain industry, i.e. food service. The licensing may require a fee, an inspection, paperwork, etc. all of which deter new businesses from forming. In addition, there may be a quota on how many businesses can operate in an industry for a certain area. These regulations increase the start-up costs of businesses, which protect existing businesses from new competition and raise the cost of the goods and services sold because of the additional overhead of complying with the regulations. The prices of goods and services trend upward while quality trends downward due to lack of competition, and because the money used to comply with regulations isn’t going to improve the operation of the business. In addition, it is a fallacy to assume causation between more regulation and increase consumer safety; it is in the best interest of businesses to attract customers by providing safe and high-quality goods and services.

Regulations also limit consumer choice. I will use health insurance as an example. Each state has its own set of required health care services that insurance companies must cover. Citizens in the state are required to purchase policies that comply with that state’s regulations. Each service that the insurance is required to cover increases the premiums policy holders must pay. However, the consumer may not have purchased coverage for a service required by the state given the choice, and would have preferred a lower premium. The state has taken that choice away from the consumer. It has also increased the cost of health insurance for everyone in the state.

Finally, regulations increase uncertainty in the future. The Dodd-Frank financial regulation bill and Obamacare are two good examples of how this affects the market. Many businesses, especially small ones, are reluctant to invest because they don’t know what the costs of these regulations will be, first because they are both enormous and confounding, and second because many of the details have not yet been written by the agencies charged with enforcing the new rules. Because businesses can’t predict their future costs, they refrain from taking new risks, hiring labor, buying capital, etc.

Another way government negatively affects the economy is through price controls. This can be in the form of explicit price ceilings or floors on goods/services, or through subsidization. I won’t argue that price floors create surpluses and price ceilings create shortages, since this is self-evident and beyond doubt. I will discuss, however, two particularly egregious price controls that governments engage in.

The first is minimum wage, which is a price floor on labor. While minimum wage is enacted under the guise of requiring a livable income for workers, what it actually does is make anyone whose labor is valued at less than minimum wage unemployable. In addition, because businesses may suddenly have to pay workers more because of a new minimum wage, they must make up for this additional cost either by increasing prices, decreasing quality, or laying off marginal workers.

A second price that governments control is interest rates, or the price of money. When a bank is low on assets, it raises interest rates to encourage saving over borrowing, so it can replenish its asset reserves. When reserves are high, the bank lowers interest rates to encourage borrowing. However, when the government sets interest rates lower than the free market rate, borrowing outpaces savings. While the idea is that cheap money begets business investment and growth, a lot of this borrowed money goes into the hot investment of the day, like stocks in the 1920s or housing in the 2000s. Since demand for these assets spike because of cheap money, prices skyrocket and supply moves to match demand. As supply catches up, or when investors realize that their assets are overvalued, the asset prices plummet, banks and consumers go bankrupt, and all the resources put toward building up these assets are revealed to be a waste. Artificially low interest rates are a primary cause of the business cycle.

Subsidization has several negative effects as well. First, this subsidy must be extracted from the people either through taxation, reducing the people’s wealth now, or by borrowing or money creation, reducing their wealth later. Second, the subsidy rewards businesses for producing things that consumers aren’t demanding, at least not at the price required to cover business costs. The resources that the business could be using to produce things that consumers would demand at a market-clearing prices are instead being used to make things the government incentivizes them to produce, with market losses involuntarily covered by the consumer, who may not benefit from the subsidized good/service, or may benefit more from an alternative that wouldn’t require a subsidy.

A third way in which governments interfere with the economy is through property controls. This can take the form of taxation, prohibition, or seizure. Taxation, particularly of wages and income, implies that the government is the primary owner of the product of labor, and that the people are entitled only to what the government allows them to keep. Disregarding the moral implications, both the tax itself and the costs of tax compliance reduce taxpayer wealth. Much of this wealth is then wasted on unproductive endeavors, such as paying for the labor and capital required to collect and allocate the tax revenue, instead of being distributed as entitlements or satisfying consumer demands.

Through prohibition, governments determine what you are and are not allowed to own. This limits consumer choice by banning products such as incandescent light bulbs, and creates future uncertainty, since the government can ban anything at any time, which may include an important resource for a business. Governments can also prohibit the use of owned property. If you buy land and the EPA determines that there is endangered species on it, you are prohibited from developing the land. The government can at any time prohibit ownership, or otherwise destroy the value, of your property.

Through seizure, government can extract wealth from the people directly, such as through civil asset forfeiture, or force the people to sell their property to the government, as through eminent domain. Not only does this reduce the wealth of the people, it creates uncertainty for the future, since the government can demand a person’s property at any time and leave him in a state where he cannot easily, if at all, get it back through legal action if the seizure was unjustified.

Government intervention in the economy is both unpredictable and coercive. It undermines free association and property rights, and incentivizes businesses to please government agents over consumers.

Con

1) regulations

Government regulations have been shown to increase consumer safety, it isnt a pretense the government acts under it has been proven to increase consumer safety. Regulations such as these do cost businesses more money because now they are forced to spend more on the same product to sell to people, but companies always work around this by simply raising the costs of goods in order to make a profit. Also the regulations dont often add significantly to the cost of the product being regulated in the first place. In car industries for example the cost of putting an airbag in the steering wheel might cost only a couple hundred dollars for a car that could easily cost thousands.

Such regulations may spur entirely new businesses completely. When the government back in the 1800’s to 1900’s regulated coal mining one regulation was the installation of proper ventilation for the workers, of course coal mining companies dont know a thing about air conditioning so they would have to hire a company that does to install the safety standards. So even if one industry is regulated the costs may only be a fraction of the final product and the regulations themselves may encourage other industries to sprout in order to help meet those regulations.

2) business licensing

These regulations deter the formation of evil companies that would try to sacrifice consumer safety for their own profit. Legit companies that know how to make a good profit while complying with the standards would have no problem with licensing at all. Such licenses are also used to see if the business is engaged in shady or illegal trading practices or not, whether it is even active or not, how many people they employ to see if they qualify for tax write-offs or not, how many new people they hired, etc. these licenses only discourage shady companies from entering the market.

3) uncertainty

The two examples you used are the two examples that havent even been enacted yet. If you look back in history to any other remotely similar regulations then by observing how the market responds afterward can give you a good idea of what will happen in the future. Obamacare meanwhile is in an entirely different field of regulations but there have been many other laws that regulated fields of business that had a positive effect. One example is the law that created National Parks to prevent certain areas from being exploited by people or businesses. It was revolutionary at the time and today we can see these parks as sanctuaries for animals which on their own generate thousands, even millions, from tourism.

4) minimum wage

It is debateable whether or not minimum wage serves a purpose today (I think it does) however the debate is whether or not government intervention is beneficial or not, and it can be argued that the minimum wage can be beneficial to the market under certain conditions

5) Interest rates are used by the governments monetary policy, which uses interest rates to try to fight against any trends in inflation and unemployment. Lowering such rates may give the economy a short term boost by encouraging economic activity without directly causing inflation, the interest rate can also be adjusted against inflation so that the buying power of a dollar is not diminished. Those giving out the loan can adjust interest rates so that if the loan fails the lender does not suffer a complete loss. interest rates can be used to cause all of these to happen (in rare cases all at the same time) and thus it is a good tool for a healthy economy.

6) subsidization

During the Great Depression the government subsidized farming products grown in the Midwest to prevent farmers from losing their jobs (although many still did). But the subsidy today is still used to provide protection to vital industries (like agriculture) to make sure under hard times the entire sector does not go belly up. Sometimes these goods are purchased by the government to then distribute overseas as foreign aid. Subsidies literally exist to prevent the decline of businesses which goes directly against the Pro’s theory that they do more harm than good to the market.

7) property seizure

The government holds the right to collect taxes, what they spend it on is up to their discretion.

8) banning stuff

The Pro seems to have forgotten that such government bans can be reversed, thats what happened in the biggest case of the government banning a product in history, Prohibition. That was eventually repealed though which shows that there is never certainty that something that is banned will eventually be overturned. Also any ban on any item must first go through the House, the Senate, and then the President, and then may be challenged in the Supreme Court, so the Pro may think that anything could be banned at any time, but the truth is it cannot. as for the development of owned property, I find it reasonable to see why the government would stop someone from building a house or a factory in an area home to an endangered species (ever see the movie Hoot?)

9) seizure of property

The concept of Eminent Domain provides for monetary compensation to people for the government to build highways, railroads, etc. on lands already owned by people, and these developments can do a great deal of good for the economy through job creation. Sometimes the land seizures are justified, if say a company that operates through shady practices causes a chemical spill in a town that causes it to be uninhabitable because the spill caused something that now posed a great risk to the health of those living there, then those people cant just sell their homes and get out. The government though can quickly offer monetary compensation and allow people to get out before any harm is done to them because of the mistake from the shady business.

These government interventions can be shown to do good for the economy because these laws help fight poverty, protects consumers, mandates that businesses compete fairly and dont gain an edge by trying to exploit workers or safety of the product they are selling. The uncertainty the Pro claims exists only exists on a far smaller scale then what he implies, and the government uses these measures to protect both businesses and consumers without putting a huge cap limit on how much money corporations can make.